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New legislation homing in on Internet sales

In the opening scene of the 1980 Robert Altman-Robin Williams film “Popeye,” my favorite “sailor man” is seen docking his rowboat in the town of Sweethaven, where he will meet his sidekicks from the 1950s cartoon series: Olive Oyl, Wimpy and, of course, Bluto. At the wharf, Popeye is greeted by the Tax Man, who promptly charges Popeye a 17-cent “new in town” tax, a 45-cent “rowboat under the wharf” tax and a $1 “leaving your junk lying around on the wharf” tax. When Popeye questions the taxes, the Tax Man says, “Is that a question? There’s a nickel question tax.” A crowd of kids gathers to watch what’s going

Behind the Gavel by Wayne Jordan

on, and the Tax Man promptly takes off after the kids to collect a nickel each “curiosity tax.”

Popeye’s reaction to all the taxes?

In his own words, “I’ze disgustipated.”

Disgustipated is what I am regarding the debate over taxing Internet sales. This debate has smoldered for years, and it comes before the Senate this week in the form of the Marketplace Fairness Act (MFA). The bill will likely pass in the Senate but meet more resistance in the House. By the time this column goes to press, the Act may be a “done deal.”

If for some reason it fails to pass in its current form, we can be assured that it will return again and again until some form of taxation on Internet sales is enacted. Currently, state and local jurisdictions are losing an estimated $22-$24 billion annually in sales tax revenues. That much money won’t stay off the table for very long; the government will get it one way or another.

Under current law, online retailers only have to collect sales tax in states where they have a physical presence (a store, a warehouse, a permanent sales rep). The Marketplace Fairness Act would require online business with sales exceeding $1 million annually to collect sales tax on all sales, regardless of whether they have a physical presence in the state. State governments would be required to provide free software to retailers so that calculating their sales tax might be less burdensome.

Less burdensome?

Let me get this straight: If I sell more than $1 million in goods online each year (I don’t), then I will be responsible for submitting monthly tax returns to the 9,600 taxing jurisdictions in the United States? When I owned a store, it was all I could do to get one state return done every month. I’ve owned businesses in Maryland, Virginia and Delaware, and all of those states require returns to be filed even if I had no sales in a given month. (Delaware has no sales tax, but rather a gross receipts tax on sales.)

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Can you imagine that in a given month that you might only sell into 26 states, but you still have to file returns for the other 24 where you made no sales?

Then there’s the question of audits; under the MFA, taxing jurisdictions would have the right to cross state lines to audit out-of-state businesses.

And what of the “free software?” Giving me 50-plus versions of tax software, each with its own idiosyncrasies, is a certain way to ensure that I won’t file my taxes on time. As we all know, the penalties for filing a late sales tax return is steep; in Maryland, the penalty is 10 percent of the tax due plus interest. And if the state sends you a late notice, the penalties and interest worsen.

Most of the big online retailers like Wal-Mart and Amazon are in favor of the new taxes, probably because they are already collecting them. EBay, to its credit, is against the bill, and wants the tax collecting threshold raised to $10 million to protect “mom and pop” businesses.

In the Senate, Democrats line up against Democrats and Republicans against Republicans. The only point anyone can agree on is that governments need the $24 billion that’s not being collected.

My opinion? At the risk of aggravating some of my readers, here it is: Every business should collect sales tax on every transaction, and there should be no threshold to protect mom and pop businesses. Tax should be collected on every dollar, beginning with the very first dollar of sales.

Having said that, let me say that the Marketplace Fairness Act as currently constituted is wrong-headed and stupid. I do agree that sales taxes are needed and should be collected, but let’s not burden small businesses with having to collect taxes for jurisdictions beyond their borders; instead, let them collect and remit sales taxes to their local jurisdictions, regardless of where the item is shipped.

If I drive across the border into North Carolina or West Virginia and make a purchase, I pay sales tax at the register. If I go to California and make a purchase, I pay sales tax at the register. In other words, I pay the sales taxes that are due at the location of the store at which I made my purchase. It makes no difference that I live in Virginia and will transport the goods to that state.

If I buy a book online from a dealer in Ohio, let me pay the sales tax at the Ohio rate. Then, let the Ohio dealer remit the tax to the State of Ohio as he would with any of his brick-and-mortar sales.

Behind the Gavel columnist Wayne Jordan offers insights on the potential impact of the Internet sales tax debate, and channels Popeye in his opinion.

If the dealer has no brick-and-mortar sales, no difference; he’s still set up to do business in Ohio and should collect taxes for his state. Dealers would file one return – not hundreds – and be responsible to one jurisdiction.

Proceeding in this manner will put the missing sales tax revenues back in the coffers of the jurisdictions that need the taxes, but in this scenario the taxes will go to the state where the business is locat

ed and the sales were made. Trying to track out-of-state sales for hundreds of jurisdictions and fill out and submit monthly returns is just not a workable

solution to the problem of collecting online sales tax.

Of course, legislators don’t pay much attention to me; I have no lobbyists working for me, and I don’t represent much of a constituency.

So, like everyone else, I’ll comply with whatever nonsense Congress passes and the President signs.

But that won’t keep me from being disgustipated.

About our columnist:Wayne Jordan is a Virginia licensed auctioneer, certified personal property appraiser, and accredited business broker. He specializes in the valuation and liquidation of estate and business assets. His column Behind the Gavel appears in every issue of Antique Trader. Learn more at www.waynejordanauctions.com, 276-730-5197 or auctioneer.wayne@yahoo.com.

About Wayne Jordan

Wayne Jordan is a Virginia licensed auctioneer, certified personal property appraiser, and accredited business broker. He specializes in the valuation and liquidation of estate and business assets. His column Behind the Gavel appears regularly in Antique Trader. Learn more at www.resaleretailing.com, or email auctioneer.wayne@yahoo.com.